In their first estimate of the US GDP for the second quarter of 2015, the Bureau of Economic Analysis (BEA) reported that the economy was growing at a 2.32% annualized rate, up +1.68% from a revised +0.64% growth rate for the first quarter (and up over 2.49% from the -0.17% contraction rate previously reported).

The revision to the first quarter's "final estimate" was accompanied by revisions to all quarters back through 2012. On average the revisions trimmed about a quarter of a percent (-0.22%) from previously reported growth rates. However, several quarters were more materially revised -- with nearly -2.0% shaved off the growth rate for the third quarter of 2012, and another -1.5% removed from the grow rate previously reported for the third quarter of 2013. A table showing all of the revisions to the historic headline numbers is provided below.

For the newly reported second quarter nearly all of the BEA's major categories of economic activity had positive contributions to the headline number. Consumer goods contributed +1.04% to the headline, while consumer services added +0.95%. Exports provided +0.67% (up +1.48% from a revised -0.79% contraction in the prior quarter), while imports removed only -0.54% from the headline (some +0.58% better than the revised -1.10% impact in the first quarter). Fixed investment provided a positive contribution (+0.14%), as did governmental spending (also +0.14%). Inventories were nearly unchanged (-0.08%), resulting in a +2.40% growth rate for the BEA's "bottom line" real final sales of domestic product.

Real annualized per capita disposable income was reported to be $37,846, some -$364 per year less than the previously reported $38,210 per annum. All of that downside came as a result of revisions to the prior quarter's data, which was revised downward by -$437 (over a full percent). Meanwhile, the household savings rate plunged to 4.8% -- down -0.7% from the previously reported 5.5%.

For this revision the BEA assumed an annualized deflator of 2.04%. During the same quarter (April 2015 through June 2015) the inflation recorded by BLS in their CPI-U index was 3.52%. Under estimating inflation results in optimistic growth rates, and if the BEA's "nominal" data was deflated using CPI-U inflation information the headline number would show a more modest +0.89% growth rate.

Among the notable items in the report :

-- The headline contribution from consumer expenditures for goods was +1.04% (up +0.79% from the prior quarter).

-- The contribution to the headline from consumer services increased slightly to +0.95%. The combined consumer contribution to the headline number was 1.99%, up +0.80% from the prior quarter.

-- Commercial private fixed investments added +0.14% to the headline number -- down -0.38% from a revised +0.52% growth in the prior quarter. This drop occurred primarily in spending for commercial structures and IT equipment, while growth was reported in transportation equipment, residential construction and intellectual property.

-- Inventory contraction removed a relatively modest -0.08% from the headline number (down -0.95% from the revised prior quarter).

-- Governmental spending added +0.14% to the headline (up +0.15% from a revised -0.01% for the previous quarter). The growth was entirely at the state and local level.

-- Exports rebounded significantly from the prior quarter's contraction, adding +0.67% to the headline number (up +1.48% from the revised data for the prior quarter).

-- Imports subtracted less from the headline number (-0.54%) than in the prior quarter.

-- The "real final sales of domestic product" is now growing at a +2.40% annualized rate. This is the BEA's "bottom line" measurement of the economy and it excludes the reported minor inventory contraction.

-- And as mentioned above, real per-capita annual disposable income plunged in this report relative to previously published data. This particular data series was severely impacted by the historic revisions. The real per-capita annual disposable income is up only +3.19% in aggregate since the second quarter of 2008 -- an annualized +0.45% growth over the past 28 quarters.

The Numbers, With Extensive Historic Revisions

As a quick reminder, the classic definition of the GDP can be summarized with the following equation :

In the new report the values for that equation (total dollars, percentage of the total GDP, and contribution to the final percentage growth number) are as follows :

GDP Components Table

Total GDP

=

C

+

I

+

G

+

(X-M)

Annual $ (trillions)

$17.8

=

$12.2

+

$3.0

+

$3.2

+

$-0.5

% of GDP

100.0%

=

68.4%

+

16.8%

+

17.7%

+

-2.9%

Contribution to GDP Growth %

2.32%

=

1.99%

+

0.06%

+

0.14%

+

0.13%

The quarter-to-quarter changes in the contributions that various components make to the overall GDP can be best understood from the table below, which breaks out the component contributions in more detail and over time. In the table below we have split the "C" component into goods and services, split the "I" component into fixed investment and inventories, separated exports from imports, added a line for the BEA's "Real Final Sales of Domestic Product" and listed the quarters in columns with the most current to the left :

Quarterly Changes in % Contributions to GDP

2Q-2015

1Q-2015

4Q-2014

3Q-2014

2Q-2014

1Q-2014

4Q-2013

3Q-2013

2Q-2013

1Q-2013

4Q-2012

3Q-2012

2Q-2012

1Q-2012

Total GDP Growth

2.32%

0.64%

2.07%

4.27%

4.56%

-0.91%

3.82%

2.98%

1.11%

1.91%

0.10%

0.50%

1.89%

2.67%

Consumer Goods

1.04%

0.25%

0.91%

0.91%

1.49%

0.25%

0.70%

0.60%

0.28%

1.39%

0.53%

0.63%

0.26%

1.11%

Consumer Services

0.95%

0.94%

1.95%

1.42%

1.11%

0.61%

1.66%

0.57%

0.68%

0.36%

0.25%

0.10%

0.20%

0.52%

Fixed Investment

0.14%

0.52%

0.39%

1.23%

0.87%

0.91%

0.79%

0.59%

0.40%

0.77%

1.03%

0.00%

0.98%

2.00%

Inventories

-0.08%

0.87%

-0.03%

-0.01%

1.12%

-1.29%

-0.08%

1.48%

0.38%

0.28%

-1.54%

-0.18%

0.56%

-0.53%

Government

0.14%

-0.01%

-0.26%

0.33%

0.21%

0.00%

-0.51%

-0.42%

-0.38%

-0.88%

-0.75%

-0.22%

-0.39%

-0.40%

Exports

0.67%

-0.81%

0.71%

0.24%

1.28%

-0.95%

1.42%

0.55%

0.64%

0.12%

-0.07%

0.27%

0.61%

0.37%

Imports

-0.54%

-1.12%

-1.60%

0.15%

-1.52%

-0.44%

-0.16%

-0.39%

-0.89%

-0.13%

0.65%

-0.10%

-0.33%

-0.40%

Real Final Sales

2.40%

-0.23%

2.10%

4.28%

3.44%

0.38%

3.90%

1.50%

0.73%

1.63%

1.64%

0.68%

1.33%

3.20%

The revision to the 1st quarter numbers was part of a comprehensive restatement of historic GDP numbers from 2012 through the first quarter of 2015. Some of the revisions were the result of better data, while other revisions were the result of methodology changes. The restatements are as follows :

BEA's Revisions to US Economic Growth

Quarter

New Rate

Prior Rate

Net Change

1Q-2015

0.64%

-0.17%

+0.81%

4Q-2014

2.07%

2.22%

-0.15%

3Q-2014

4.27%

4.96%

-0.69%

2Q-2014

4.56%

4.59%

-0.03%

1Q-2014

-0.91%

-2.11%

+1.20%

4Q-2013

3.82%

3.50%

+0.32%

3Q-2013

2.98%

4.51%

-1.53%

2Q-2013

1.11%

1.77%

-0.66%

1Q-2013

1.91%

2.75%

-0.84%

4Q-2012

0.10%

0.06%

+0.04%

3Q-2012

0.50%

2.48%

-1.98%

2Q-2012

1.89%

1.62%

+0.27%

1Q-2012

2.67%

2.25%

+0.42%

Summary and Commentary

Our observations this month are focused on the BEA's revisions to the historic data:

-- The revisions follow a recent annual pattern of the BEA revising historic quarterly growth rates lower. This revision removed -0.22% on average from previously reported growth rates, while the 2014 revisions removed -0.19% on average from the then previously published growth rates (and another -0.09% was removed on average in 2013). The cumulative impact of the successive hair-cuts has reduced historic growth rates by an average approaching one half percent relative to "final" headline numbers -- representing an optimistic bias of about a half percent in the BEA's "final" estimates. It is worth noting that this optimistic bias has been getting progressively worse.

-- Especially hard hit in the revisions were the real per-capita disposable income numbers. The cumulative compound annualized growth rate for real disposable income has been only +0.45% since the second quarter of 2008. And these figures represent mean incomes that are skewed by disproportionate growth at the upper end. According to Sentier Research, median incomes during the same time span have contracted by roughly 4%.

-- And household savings rates have been weaker than previously suspected, confirming the lower incomes.

A conclusion from the above? The BEA has been persistently optimistic about the "Great Recovery" while the median household has been hammered. Sadly, nothing in this report suggests that things are getting better.

Note: A more complete list of historical commentary can be found on our History Page ...